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Spanish banking giant Santander (NYSE:SAN) has announced today that it has become the first bank to use blockchain to manage a bond issue.
The bank reportedly issued $20 million USD worth of bonds on the Ethereum blockchain, where it will remain until the end of its one-year maturity. As part of the transaction, Santander used an ERC-20 token to represent the value of the bond, which it issued on Ethereum’s blockchain network. This ERC-20 token was then bought by one of Santander’s companies, Santander Corporate and Investment Banking (CIB), for the token’s market price and the funds were subsequently transferred via the blockchain.
Other institutions have made similar issuances using blockchain technology; for example, the World Bank issued a similar bond on a private version of Ethereum, which raised $110 million AUD in August 2018. In April, French lender Societe Generale Group issued $112 million USD worth of bonds to itself, also on Ethereum. Santander is claiming bragging rights as being the first bank to have all aspects of the bond issue managed by blockchain.
Santander launched this bond as a result of increasing demand from clients to provide the best technological advancements for improving their capital-raising efforts. John Whelan, Head of Digital Investment at Santander, described the initiative as “an evolutionary step.” The bond issue is an important step forward for institutional activities in crypto, as previously when a security had been issued on the blockchain, the cash side of the trade was processed via traditional analog methods that significantly slowed the whole process.
Santander used Nivaura, a digital investment banking service that it has invested in, to coordinate the bond issue. Nivaura CEO Avtar Sehra was keen to emphasize that, rather than digitizing a bond, what this project actually did was digitize the process of issuing bonds. “The Santander execution is the first truly digital front to back execution process, which securely uses relevant data to tokenize both the assets and cash to enable on-chain settlement and coupon payments,” he said.
It looks like blockchain’s role in the future of banking is getting bigger and bigger, with Santander recently expanding its use of Ripple’s xCurrent software. What do you think?